Electrolux cuts North America outlook as tariffs force price hikes

STOCKHOLM (Reuters) - Home appliance maker Electrolux (ELUXb.ST) cut its full-year forecast for sales growth in North America, its biggest market, after higher U.S. steel tariffs forced it to increase prices for its products.

The Swedish company said on Wednesday it expected demand in North America to grow by zero to 2 percent in 2018, lagging its previous forecast of 2-3 percent growth, while it also lowered its outlook for the smaller Latin American and Australian markets.

CEO Jonas Samuelson said Electrolux had raised prices in North America by 2 percent after U.S. tariffs inflated prices of locally sourced steel and that it would lift prices further to offset any additional inflation due to the trade conflict.

“Steel tariffs and fuel cost inflation are affecting the market as a whole and we are passing that through as an industry, and ourselves, as a price increase, and that has a negative effect on demand,” Samuelson told Reuters.

“Everything is interrelated.”

Electrolux, which competes with Whirlpool (WHR.N), LG Electronics (066570.KS) and Haier Group, estimated on Wednesday that the negative impact from raw material price changes would be about 1.8 billion Swedish crowns ($203 million) in 2018, at the top end of its previous guidance.

Samuelson told analysts the impact from steel tariffs was accounted for in the guidance and that Electrolux would also see an impact of $10 million or more on its net cost efficiencies this year from a second batch of tariffs imposed in July.

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Samuelson, since taking the top job two years ago, has focused on raising profitability at Electrolux through greater efficiency and cutting lower-margin products, but new U.S. tariffs on steel and aluminum imports, as well as duties on plastics, this year have challenged his plan by leading to unexpected costs.

The United States is also considering tariffs on additional goods worth $200 billion, whose potential impact on Electrolux is unknown.

Samuelson said that Electrolux would explore curbing discretionary spending in areas such as marketing to offset some of the cost inflation and that it was also rethinking its capital investment in North America.

“We are committed to making sure that we have a competitive manufacturing footprint in North America and that is the core source of our products. But the scope and scale and form of our investments (there) are affected by these tariffs,” he said.

The company last year launched an 8 billion crown investment drive to modernize its factories, especially in North America, to better compete with cheaper Asian competition.

Shares in Electrolux, which sells products under its namesake brand, but also owns brands Frigidaire, AEG and Anova, were down 1 percent at 200 Swedish crowns at 0911 GMT.

This marked a reversal from earlier in the day, when shares rose as much as 5 percent after Electrolux reported slightly better-than-expected quarterly earnings thanks to cost controls.

Adjusted operating earnings came in at 1.65 billion Swedish crowns for the second quarter, slightly ahead of a 1.61 billion crown forecast in a Reuters poll of analysts but down from a profit of 1.92 billion crowns a year ago.

($1 = 8.8607 Swedish crowns)

Reporting by Esha Vaish in Stockholm, editing by Niklas Pollard and Susan Fenton